Ever wish you could sell an investment property in West Richland, reinvest fast, and keep your tax bill at bay? You are not alone. Many local owners use a 1031 exchange to defer federal capital gains when they trade into another property. In this guide, you will learn the key rules, local taxes, timelines, and a simple plan to execute your exchange with confidence. Let’s dive in.
1031 basics you need to know
A 1031 exchange lets you defer federal capital gains tax when you sell qualifying U.S. real property and buy other qualifying real property for business or investment. Personal residences and property held for personal use do not qualify. The IRS explains the scope and rules in its official guidance on like-kind exchanges. See the IRS overview of Section 1031.
Strict 45 and 180 day deadlines
You must identify your replacement property within 45 days of selling your relinquished property. You must close on the replacement within 180 days, or by your tax return due date with extensions, whichever comes first. These deadlines are strict and not usually extendable. Review the IRS timing rules before you list.
What qualifies as like kind
For real property, like kind is broad. You can exchange land for a rental, a rental for small commercial, or similar U.S. real estate. You cannot swap U.S. property for foreign property. The federal regulations clarify what counts as like kind and the U.S. versus foreign rule. See the final regulations on like-kind real property.
Why a Qualified Intermediary matters
To avoid receiving the sale proceeds yourself, you will work with a Qualified Intermediary, often called a QI. The QI holds funds and coordinates the exchange paperwork. Engage your QI before you close the sale. The IRS guidance on delayed exchanges and QIs outlines how this works.
West Richland taxes and closing costs
Understanding Washington taxes will help you budget and avoid surprises at closing.
Capital gains excise tax in Washington
Washington’s capital gains excise tax does not apply to the sale or exchange of real estate. If your exchange involves Washington real property, this state excise tax is not triggered by the real-estate sale itself. Learn more on the WA Department of Revenue’s capital gains tax page.
REET rates in West Richland
Most sellers in Washington pay Real Estate Excise Tax at closing. The state uses graduated rates based on price, and cities or counties can add local REET. West Richland imposes a local total of 0.50 percent, collected in addition to the state portion. Review the state REET overview and the West Richland municipal code on local REET when you estimate costs.
Common exchange structures
Delayed exchange
This is the most common. You sell first, your QI holds the funds, and you acquire the replacement within the 45 and 180 day windows. See the IRS overview of Section 1031.
Reverse and improvement exchanges
In a reverse exchange, an accommodator parks the new property while you sell the old one. In an improvement exchange, exchange funds are used to improve the replacement property within the 180 day window. Both require special structures and are more complex. Get familiar with the QEAA framework used in reverse and improvement exchanges before you choose this route.
Step by step plan
Use this checklist to stay on track in the Tri-Cities market.
- Confirm eligibility
- Ensure the property you are selling has been held for investment or business use, not for personal use. Review the Section 1031 basics and speak with your CPA.
- Build your team early
- Line up a Qualified Intermediary before you list, choose a title/escrow team with 1031 experience, and consider a real estate attorney and CPA. See the IRS guidance on QIs.
- Pick your structure
- Decide on a delayed, reverse, or improvement exchange. Reverse and improvement structures cost more and require extra planning. Read about QEAA structures.
- Set up contracts and escrow
- Do not touch sale proceeds. Your QI should receive funds directly from closing and disburse them for your purchase. Title should be held in the same taxpayer name across both legs. See the IRS timing and QI rules.
- Identify and close on time
- Identify in writing within 45 days and close within 180 days. Keep written proof of your identifications. The final regulations describe identification rules.
- Match price and debt
- To defer all gain, buy equal or greater value and replace any debt you paid off. Cash received or a reduction in debt is taxable boot. Learn the basics of boot and debt relief in this Section 1031 overview.
- Report correctly
- Your CPA will file IRS Form 8824 for the year of the exchange and account for depreciation recapture. Review IRS Publication 544 for reporting and recapture guidance.
- Budget for fees and REET
- Standard delayed QI fees often run in the hundreds to a little over one thousand dollars, while reverse or improvement setups can be several thousand. See typical ranges in this note on 1031 exchange closing costs. Add title, escrow, professional fees, and state plus local REET to your budget.
- Keep complete records
- Save your exchange agreement, identification letters, closing statements, deeds, and Form 8824. This helps with audits and basis tracking. Guidance is in IRS Publication 544.
Replacement property ideas in the Tri-Cities
You have options across West Richland and nearby communities. Many exchangers consider single family rentals, small multifamily, neighborhood commercial or light industrial, and agricultural or vineyard parcels close to Red Mountain. Some investors also use fractional interests such as DSTs or TICs, which can help with quick closings but require careful review of sponsor documents and risks.
Pitfalls to avoid
- Missing the 45 or 180 day deadline. See the IRS timing rules.
- Handling sale proceeds yourself. Use a reputable QI with strong controls. Learn how to vet a QI in this guide on Qualified Intermediaries.
- Trading down in value or debt without planning, which creates taxable boot. See the Section 1031 overview.
- Title or taxpayer mismatches between sale and purchase.
- Related party exchanges without proper planning and holding periods.
Next steps in West Richland
- Meet with a CPA or tax advisor to confirm eligibility and plan the timeline.
- Select a Qualified Intermediary before you go under contract.
- Ask your escrow team to estimate state and local REET for your price point. The WA DOR REET page and West Richland code provide current guidance.
- Identify primary and backup replacement properties early to protect your 45 day window.
If you want local help finding the right replacement property or preparing your West Richland sale for a smooth exchange, connect with Sandra McKinley. You will get attentive, white glove guidance backed by deep Tri-Cities experience.
FAQs
What is a 1031 exchange for real estate investors?
- It allows you to sell qualifying U.S. real property held for business or investment and defer federal capital gains by buying qualifying like-kind property, as outlined in the IRS Section 1031 guidance.
Do Washington capital gains taxes apply to my West Richland sale?
- Washington’s capital gains excise tax excludes real estate transactions, but sellers typically pay REET, so review the state capital gains page and REET guidance.
How long do I have to identify and close in a 1031?
- You have 45 days to identify replacement properties and 180 days to close, as stated in the IRS timing rules.
Can I exchange into a different property type?
- Yes, like kind is broad for U.S. real property, but U.S. property cannot be exchanged for foreign property, per the final regulations.
Can I move into the property I buy in a 1031 exchange?
- 1031 exchanges are for property held for investment or business use, not personal residences, so personal use can put your deferral at risk; see the IRS 1031 overview and consult your tax advisor.
Who pays REET on a West Richland closing?
- The seller typically pays REET, which combines the state’s graduated rate with West Richland’s local REET; check the state REET overview and city code.
